Snowball vs. Avalanche: Which Debt Payoff Strategy is Best?

In the world of accelerated debt payoff strategies, there are two camps: debt snowball and debt avalanche. These strategies are both great because they will help you pay off your debts faster than just making the minimum payments alone. But, the major difference between debt snowball vs. avalanche is that one route is incredibly motivating and one saves you money – it’s all about the order you pay off your debts.

I’ve actually seen a lot of online arguments about which one is better… people have strong feelings about this kind of stuff… but the reality is that both the debt snowball and avalanche will have a positive effect on your debt.

You can use either of these methods for paying off student loans, credit card debt, doctor’s bills, car notes, your mortgage – any kind of debt.

The debt snowball

Dave Ramsey has made this a really popular debt payoff strategy, and his followers preach the debt snowball hard. The reason being is that debt snowball gives you some early wins that motivate you to keep going. You build momentum by focusing on your smallest debts first, then rolling those payments together to focus on larger balances.

Here’s how the debt snowball works:

Every month you pay the minimum balance on all of your debts.

You put as much extra as possible towards your debt with the smallest balance.

Once your smallest debt is paid off, you move onto the next one until all of your debts are paid off.

The early satisfaction you get from paying off those smaller debts is what drives you through your debt payoff… kind of like a “hey, you’ve got this!” Paying off debt can feel exhausting, so that positive feedback early on helps you from getting too fatigued.

The debt snowball in action

Say you have $40,000 in student loan debt. It’s not one loan, rather a bunch of smaller loans that you’ve borrowed at different interest rates. With the debt snowball, you’re going to ignore the interest rates and focus on the total amount of each debt.

I’m going to make up some loan details here to show you how you use the debt snowball in real life:

Loan

Balance

Interest Rate

Minimum Payment

Student Loan 1

$15,000

6.5%

$200

Student Loan 2

$5,000

5.5%

$75

Student Loan 3

$10,000

5%

$150

Student Loan 4

$3,000

5%

$50

Student Loan 5

$7,000

6%

$125

Totals

$40,000

Cell

$600

​

With the debt snowball, you’re going to start focusing your energy on Loan 4 because it has the lowest balance. If you have student loans, or any debt, you know that the numbers never look this clean and simple, but I rounded things out to make the math a little easier.

You’re paying $600 a month for just the minimum payments, but any extra money you have for debt is going to be used for that $3,000 loan. When that is paid off in a few months, your minimum payments will only be $550, but you will still pay $600 every month plus whatever extra you were putting towards Loan 4.

As you keep going, the amount you can put towards each new debt grows and grows. By the time you’ve gotten to Loan 1, you’ll be making payments that are more than three times what you should be paying.

The debt avalanche

If you were looking at that table above and were thinking “but look, you’ve got one loan with a much higher interest rate, that’s costing you so much more!” then you might be a debt avalanche person.

The debt avalanche is about math and what is going to save you the most money over time.

Here’s how the debt avalanche works:

Every month you pay the minimum balance on all of your debts.

You put as much extra as possible towards your debt with the highest interest rate.

Once your debt with the highest interest rate is paid off, you move onto the next one until all of your debts are paid off.

The debt avalanche in action

Using those same loans as earlier, your debt payoff strategy is going to focus on Loan 1 which had a $15,000 balance and an interest rate of 6.5%. You will still pay $600 a month for just the minimum payments, but you will throw as much extra money at Loan 1 as possible.

The debt avalanche can make debts with large balances feel like they are dragging on forever. Because Loan 1 is five times larger than Loan 4, it might take you five times as long to pay it off… and you will feel that fatigue.

The real benefit of the debt avalanche is that your discipline will pay off and save you money on interest charges.

Once you’ve paid off Loan 1, you’ll move onto Loan 5, after that, you can choose Loan 3 or 4, and finish up with Loan 2.

In this specific example, you aren’t shaving any time off of your debt payoff with the debt avalanche, but it sometimes can help you pay your debt off months earlier than you would with the debt snowball – you’ll see an example of this in just a second.

Pros and cons of debt snowball vs. avalanche

You’ve probably already gathered what I’m going to say here, but I want to give you a few key takeaways that will help you understand the difference in the snowball vs. avalanche debt payoff strategies.

Debt snowball empowers you with some small early victories. You see progress early on, especially if you have some pretty small debts.

The debt snowball will cost you more in interest charges over the course of your debt payoff.

The debt avalanche is better math – by focusing on loans with larger interest rates, you are saving money.

If you’re using the debt avalanche, it can be hard to sustain your motivation.

Your actual savings and timeline with debt snowball vs. avalanche

I’ve said that using the debt avalanche can save you money over the course of your payoff, but the reality is that you’re not saving a ton.

Again, using the same example as before here is the reality of deciding between one debt payoff strategy over another. I used UnBury.me calculator. It’s free and you don’t need to sign up to use it unless you want it to save your loan information.

Final word on debt snowball vs. avalanche – you don’t need to choose one or the other

The reality is that you don’t need to pick one debt payoff strategy and say that’s what I’m always doing forever. One way of approaching your debt is to start with the debt snowball. You’re going to see some wins at the beginning that will fire you up.

This is especially true if you have some pretty small balances. For example, you might have some student loans with just a few hundred dollars on them. Or, if you’re using one of these strategies to focus on other types of debt as well, you might have a $75 medical bill that you can wipe out in a month.

The debt snowball is so effective because you see progress in the very beginning – it teaches you that you can pay off your debt.

Once you’ve seen progress and are feeling pumped up, switch over to the debt avalanche. Work on your debts with the highest interest rates for as long as you stand it. If you’re feeling worn out, go back and pay off another one or two low balance debts.

And like you saw, the type of debt you have, having high-interest debt, for example, can play a big role in which debt payoff strategy you choose.

Either way, snowball or avalanche, you are accelerating your debt payoff. That’s an awesome thing, and that means you can start focusing on other important financial goals.

About Millennial Money Man

Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.

Comments

[strong opinion incoming] The debt snowball is really the better approach if you’re committed to paying off your debt quickly. If you’re paying off $40,000 over a year or two, the difference in interest between the two approaches is really negligible. However, the positive reinforcement that the snowball approach provides can’t be overstated in my opinion. Go snowball!

Rachael Wittern

I agree with this, but only if your debts aren’t all in the six figures (i.e., student loans, mortgages). In my case, either strategy requires me to shovel money for years before a loan is paid… so I feel more motivated by the interest savings of avalanche.

Yeah I think the beauty of this conversation is that either one works depending on your personality (i.e. what motivates you to keep paying toward the loans even though it sucks). I do tend to agree that people with larger amounts of debt should probably stick with the avalanche if they don’t feel that they need the quick wins. At that point nothing is quick anyway, so why not just make the move that saves you in interest?

Elise G

Great article! I’m a big fan of Dave Ramsey, but I totally agree that both can be beneficial depending on your personality and the amount of debt you have. My husband and I are currently using a snowball/avalanche hybrid method 😀

mn

Financial peace usually depends more on behavioral change than math. Yes, the avalanche approach saves a small amount on interest, over time. But from what I have seen as a financial coach, the “little victories” from the snowball result in a more complete and satisfying rise from debt. Head vs heart, take your pick. Either way, the only way to really live is debt free!

Yeah over the past few years I’ve seen both sides, and I think they are both valid. If you need the little victories to keep going and make it more tolerable, go for it. If you feel better about saving on interest, do that. Doesn’t matter too much if you’re meeting your goals.

Adam

I think it really boils down to each person individually. If you take an honest look at yourself and have the discipline to use the avalanche method then that is best. However, if you feel like you may not be able to stay on the program without any small wins then the snowball is beat.

Lovin’ this post. I’m personally strongly in favor of the debt avalanche because it makes sense financially, and I detest paying any amount of interest. That said, I’m not in a position where I have a few hundred here or there. I have 2 places to pay debt, both under 10k. If I had multiple small debts on top of the 2, I might just pay them because it’s annoying to pay 3 or more separate bills. Either way I’d tell everyone to strongly consider the avalanche method and ignore the fact that you’ll be paying that debt longer because it’s bigger. ALL THAT SAID, the habit of focusing on debt is really more important than minor difference in interest rates. Soooo yeah. If the snowball motivates you, and it’s snowball or nothing, just do it. It just doesn’t make sense from a purely financial perspective as you have demonstrated so well 🙂

Bobby, great topic. Thanks for writing about it and getting folks to pay attention to reducing debt. I find the debate somewhat humorous. I’m a Ramsey fan and so generally push people towards the snowball because I find the behavioral changes and victories to be really important. But the debate reminds of a similar debate around tithing…should I tithe on gross or net income? As Dave likes to point out, only a very small percentage of church goers tight on either so pick one! Same think with the debt reduction methodology. I find a lot of people that have argued with me about the benefits of one method over the other are swimming in debt but not using either method! So pick one and go for it. If they use the same passion that they argue .with to attack debt, either method will work

Newlywed

I’ve come to learn that finances are personal. There isn’t a one-size-fits all. You have to consider the person; their personality, goals and why they are in debt. Snowball is good for some people while the avalanche is good for others. Personally, my husband and I did the avalanche while contributing 20% to retirement, because we knew we could payoff 30k of student loans in less than 4 months. Bottom line: finances are personal. Do whatever is best for YOU

Eric Dendel

I dont think it is either one or the other. I also take into account length of remaining payments and dollar amount that would be freed up if one gets paid off. Specifically, if one has a $500 a month car payment with 10 months remaining and multiple $1,000 to $2,500 credit cards or similar loans. If i get a windfall (bonus) or sell something and I can pay down (or off) the car laon and free up the extra $500 per month. Assuming one uses the $500 on remaining debt the multiple cards will be paid off sooner also.

Ruben

Bobby, thanks for sharing this great article and comparing the 2. As someone else said, it’s up to the individual, but when I know “a system” works as it has been tried by thousands or more, then it gives me peace of mind and encourages me to just do it. I teach others to do the “Snowball” and it has been successful. Keep up the good work and I’ll share this with my group this weekend.

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